Market Overview

Why This Tesla Analyst Says Energy Will Become $200B Business For Automaker

Why This Tesla Analyst Says Energy Will Become $200B Business For Automaker

Tesla Inc's (NASDAQ: TSLA) energy segment and CEO Elon Musk's 2018 compensation plan are two poorly understood facets of the electric vehicle manufacturer's business, according to Piper Sandler. 

The Tesla Analyst: Alexander Potter maintained an Overweight rating on Tesla and raised the price target from $480 to $515.

About Tesla Energy: Tesla's energy segment and Musk's compensation can be "vexing" topics, "but they are growing increasingly material, and as such, we think they warrant more explicit attention,” Potter said in a note. 

Piper Sandler expects Tesla's energy business to reach more than $200 billion per year in revenue. 

“We anticipate sharply higher demand for these products, particularly in the late 2020s and 2030s as renewable energy grows toward 40% of electricity generation,” the analyst said. 

Tesla Energy represented $1.5 billion in revenue for the company in fiscal 2019.

In fiscal 2023, the analyst projects that Tesla Energy will hit $12.4 billion in revenue — and cross $200 billion by 2033.

Tesla will control over one-third of the market for stationary batteries, he said, adding that Tesla management has previously stated that the segment will generate as much as Tesla's automotive operations. 

Musk's Compensation: Musk receives no salary, but has an options package that is awarded based on hitting 16 milestone financial metrics and 12 market capitalization milestones.

The financial metrics are tied to annual revenue and annual EBITDA. The compensation package surfaced in the discussion over Tesla's S&P 500 snub. 

Tesla has hit several of these milestone and metrics, which now raises Musk's stock-based compensation for the third and fourth quarters, according to Piper Sandler's estimates.

“This line item will be particularly burdensome in the next few quarters, with Tesla expected to book stock-based compensation of $1B+ in 2H20,” Potter said.

The analyst expects Musk-related compensation of $258 million in the third quarter and $330.5 million in the fourth quarter.

The CEO's compensation will hit a total of $240 million in fiscal 2021, according to Piper Sandler's forecast. 

This comes after an estimated $167 million in Musk-related compensation in the second quarter. 

Tesla also spends around 3% of revenue on stock-based compensation for other Tesla employees.

Potter said he expects company-wide, stock-based compensation to hit $481 million in the third quarter and $594 million in the fourth.

The compensation hits Tesla's GAAP earnings, which are generally used in the calculation of the S&P 500 inclusion requirement of four straight profitable quarters.

TSLA Price Action: Tesla shares were trading 2.21% higher at $432.78 at last check Friday.

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Photo courtesy of Tesla. 

Latest Ratings for TSLA

Dec 2020Goldman SachsUpgradesNeutralBuy
Nov 2020WedbushMaintainsNeutral
Nov 2020Morgan StanleyUpgradesEqual-WeightOverweight

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